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1.11 pm

The Minister of State for the Armed Forces (Mr. Nicholas Soames): I am grateful to my hon. Friend the Member for Portsmouth, South (Mr. Martin) and start by congratulating him on his success in securing today's debate on a subject in which he has taken a close personal interest over many years. I am delighted to see that my hon. Friend the Member for Portsmouth, North (Mr. Griffiths) is also in the Chamber.

My hon. Friend the Member for Portsmouth, South has been an assiduous champion of the interests of Portsmouth naval base. I wish to commend him for the way in which he so vigorously fights for his constituents' interests. I also join him in expressing my admiration for the FMRO, whose reputation is excellent. I was talking this morning to a captain who had commanded a ship that had been looked after by the FMRO. He spoke warmly and highly of the quality, speed and commitment of its work. I join my hon. Friend in paying tribute to the work force, to the way in which they throw themselves into their tasks so vigorously and to the excellence of the product.

I also pay tribute to the excellent service provided to the fleet by the FMRO, and shall respond as fully as I can to the understandable concerns over the organisation's future. Those concerns have arisen following my recent announcement that we are considering whether the current market-test route remains the most appropriate course of action in the current financial and operational circumstances. As my hon. Friend rightly said, the amount that we spend on defence and the way in which we spend it is a matter of continuing review. We have to undertake a broad range of tasks and we must get everything we can out of our limited and limiting funds. I hope that I shall be able to allay some of my hon. Friend's anxieties, although I cannot promise to do so.

The FMRO is a comparatively new institution, which was opened in 1984. It has a long and proud list of antecedents stretching back to the dawn of time. In 1495, King Henry VII ordered the construction of the world's first dry dock at Portsmouth. From that auspicious beginning, there developed over the centuries the infrastructural inheritance and the skills that characterise the naval base today.

In its heyday in the late 19th century, Portsmouth dockyard, as it was then known, more than doubled its capacity through a major expansion programme. It combined ship building and ship repair with a large range of ancillary activities. As my hon. Friend knows, the dockyard, and the city, saw the most distinguished service through both world wars, but the changing nature of the Royal Navy required progressive changes in its engineering support and maintenance facilities. In response to those changing imperatives, Portsmouth dockyard ceased to build warships in the late 1960s-- HMS Andromeda was the last ship built there. In October 1984, following decisions taken in the 1981 defence review, and after a period in which it gave fantastic support to the Falklands task force, the dockyard was closed.

The fleet maintenance and repair organisation was conceived as a conscious attempt to redirect naval support resources to best effect in an era of considerable financial stringency. If there were a climate of financial stringency then, the pressures today are, proportionally, even greater.

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Our priorities have not changed much since then. The FMRO was not supposed to be a scaled-down version of what had gone before. As the FMRO evolved, it enabled a major shift in emphasis that saw it taking a far greater role in supporting the active, operational fleet rather than devoting resources to ship repair work on non-operational ships.

As a consequence of the change in emphasis, ship refit work by the FMRO ceased in 1992. Since then, the organisation has specialised in providing a flexible and responsive service to operational ships through maintenance work on vessels base-ported at Portsmouth and to visiting ships. The work undertaken ranges from programmed dockings and essential defect work, which involves ships spending several weeks in dry dock, to minor engineering support. The FMRO plays an important role in allowing the crews of vessels based at Portsmouth to spend time with their families during those maintenance periods--something that would not be so easy to arrange were the work carried out elsewhere.

Mr. Peter Griffiths: I apologise to my hon. Friend for intervening. Can he assure me that the decision on the FMRO will be taken on its merits, not in the shadow of the problems at Devonport, which may be pushing the Ministry of Defence and the Minister towards a decision that they may not wish to take?

Mr. Soames: I am delighted that my hon. Friend made that intervention and I can assure him that what he suggests is not the case. The case for the operation is based solely on trying to obtain the best result. I endorse what my hon. Friend the Member for Portsmouth, South said about the importance of the harmony rules and how well they work for the 58 per cent. of the surface fleet based at Portsmouth. The rules are extremely important to the crews and those involved with them--they are allowed a degree of flexibility that other, less fortunate, people are unable to enjoy. The FMRO also provides a centre for supplying base services and utilities to the rest of the naval base, and I again join my hon. Friend in paying tribute to its admirable work.

The decision to market-test the FMRO was confirmed during the "Front Line First" study last year, and in July 1994 the formal preparations commenced. "Front Line First" confirmed that market testing was the best way of seeking efficiencies within the organisation, focusing resources on its key tasks and identifying alternative uses for any surplus infrastructure--for example, my hon. Friend mentioned more commercial utilisation of the docks. Nothing has occurred since that time to alter that judgment, and the current review will not go back to examine alternative management options, such as in-house operation or agency status. There is no basis to suggest that that would be worth while.

In the 18 months since the decision to market-test the FMRO was taken, we have seen the implementation of the "Front Line First" measures, several of which related specifically to naval infrastructure. There have also been developments in our drive to privatise the royal dockyards and in the associated programme of surface ship and submarine refits. All of those factors have implications for the future operation of the FMRO.

There has also been continuing pressure on the support area to generate the efficiencies that are needed to maintain front-line capability and to enable the MOD to live within

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its means--which is not as easy as my hon. Friend might think. Therefore, it is only proper to review programmes such as the FMRO market test to confirm that, despite the changes that have taken place since they commenced, they remain the most appropriate and cost-effective solution. I make no apology for that, although I understand the concern that has arisen out of the uncertainty.

It is also correct for such a review to be conducted before third parties have committed significant resources to responding to the market test. That is why I have announced the review before issuing the invitation to tender: a stage which companies could reasonably assume marks the start of the formal market-test process.

It would certainly be wrong to encourage companies to invest resources at this stage while there remains a possibility of not proceeding with the market test. We would be rightly criticised if we were to do that. Therefore, we are now seeking to take a view on the Navy's future support requirements at Portsmouth and examine, against the background of our existing repair and maintenance facilities, whether we are better served by proceeding with the market test of the FMRO as it currently stands or whether alternative options would offer a more cost-effective, but still operationally acceptable, solution. Those alternatives would need to take account of the whole range of existing ship repair facilities, including the royal dockyards and the wider functions of Portsmouth naval base.

As to my hon. Friend's point about the dockyards' sale, the Government remain committed to privatisation at the right price. Considerable benefits and efficiencies have emerged in the years since the dockyards' management was contracted out to the private sector, and I fully expect that to continue under privatisation. We require both dockyards to provide longer-term competition and value for money within the refit programme. The FMRO does not carry out refit work. That may change if a private sector operator wished to bid for such work, but it would not alter our policy in respect of the two dockyards.

Efficiencies within the dockyards are not an alternative to efficiencies within the FMRO: both are needed. Dockyard efficiencies are already being addressed within the sale process. It is hoped that the review of the FMRO will generate its own savings. As I have said, any alternatives would need to take account of the whole range of existing ship repair facilities and existing capacity--including the royal dockyards and the wider functions of the Portsmouth naval base.

I assure my hon. Friend--who is entitled to such an assurance--that the FMRO will be examined not in isolation, but within a coherent context which embraces the naval base as a whole entity. Work is at an early stage and I can give no indication of how it might develop, but I am of course extremely conscious of the real anxiety caused to the work force and to the wider community and, as I told my hon. Friend, I do not wish to extend it one moment longer than absolutely necessary. I certainly hope to reach a decision early next year.

My hon. Friend wants to know what options we are examining. It will be clear from my general description of the factors involved in the review that one of the routes we are exploring is whether we can reduce the current overcapacity in our ship repair facilities. "Front Line First" made some inroads into the surplus capacity that exists within naval bases, but there is still some way to go to complete that process of rationalisation.

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Ship repair facilities remain an area where some surplus capacity exists. That is being tackled within the Government's programme of dockyard privatisation and clearly must similarly inform the review of the FMRO market test. Therefore, I cannot rule out future reductions in the tasks carried out at the FMRO should their absorption elsewhere represent a more economical use of resources.

Equally however, it is pure speculation to claim that the FMRO will close as a result of the review. I can say categorically that we will not seek to introduce measures affecting the FMRO that would impact adversely on the operations of the front-line ships. My hon. Friend is fully aware--as am I--of the great benefits that the FMRO brings to that operation and that stands it in very good stead.

The whole point of the exercise is to avoid that outcome at all costs. I reassure my hon. Friend that the review will take account of the fleet's needs and those of the ships' crews as well as the demands of the Department as a whole. That is why I give an undertaking today that it will be examined in a coherent and sensible manner in the round rather than in isolation.

I should also stress that one wholly possible outcome is to continue with the market test. For that very reason, we have taken pains to maintain the process of preparing the invitation to tender in order to minimise any delay to the overall market-test timetable should the review confirm the validity of proceeding with it. I am satisfied that our dialogue with interested private sector companies will not suffer unduly during that period of uncertainty. They fully understand the pressures that have led to the situation.

I have heard claims that the review of the FMRO is designed to displace ship repair work from Portsmouth so that it can be given to the royal dockyards to bolster the Government's privatisation programme, as my hon. Friend suggests. I have also seen media speculation that the review now under way is part of a concerted effort to undermine the naval presence at Portsmouth. I would like to take this opportunity to dispel those rumours as totally unfounded.

Taking the claims in turn, the sale of the royal dockyards is proceeding as an entirely separate matter. Negotiations with the companies currently managing both yards are not assuming that any work whatsoever will transfer from the FMRO to either Rosyth or Devonport. It is equally absurd to conclude that the review of the FMRO heralds the beginning of the end for the naval

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base. I recognise local concern about the recent decision which I announced during the defence debate last month to base HMS Ocean and the future amphibious ships at Devonport rather than at Portsmouth. However, I assure my hon. Friend that there is no connection between that decision and the review of the FMRO market test. The review has no remit to address current base-porting arrangements.

The fact is that Portsmouth is currently home to some 58 per cent. of the surface fleet of the Royal Navy--we need no further evidence of the Royal Navy's complete commitment to, and dependence on, Portsmouth as a key operational and support centre. I have also heard suggestions that, rather than review the FMRO, the Government should look again at the royal dockyards to seek efficiencies there. That task is already in hand within the context of the dockyard privatisation programme.

The Government's policy on ship refits is quite clear and requires both dockyards to provide effective competition and value for money into the future. The process of dockyard sale will prove to be the mechanism for delivering efficiencies within the dockyards and reducing costs to the MOD.

In summary, I make it clear that, in deciding whether to market-test the FMRO, we will take full account of the factors raised by both of my hon. Friends today. We will not adopt solutions which, while pleasing on cost grounds, fail to meet the operational needs of the Royal Navy. The FMRO currently delivers a first-class service in a thoroughly effective manner.

I cannot, however, dispel fears that the facilities and functions currently carried out by the FMRO might be affected by the review. I hope that, by setting them in the context of the financial and operational imperatives that obtain, I have at least allayed the worst suspicions and made it clear that our minds are truly and genuinely open.

There is certainly no hidden agenda or preconceived view that the market test should not proceed. As my hon. Friend rightly said, it behoves us to be prudent in committing the Department to courses of action which may not represent best value for money. That is the sole rationale behind the review.

I have listened carefully to my hon. Friend and undertake to keep him closely in touch with developments. Once again, I warmly congratulate him on securing a debate on an important asset not only to the Royal Navy, but clearly to Portsmouth and the wider community. I congratulate those who work in the FMRO. I am extremely grateful to them and I congratulate my hon. Friend on raising the matter.

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